A former editor for Forbes and the Financial Times, Eamonn Fingleton spent 27 years monitoring East Asian economics from a base in Tokyo. In September 1987 he issued the first of several predictions of the Tokyo banking crash and went on in "Blindside," a controversial 1995 analysis that was praised by John Kenneth Galbraith and Bill Clinton, to show that a heedless America was fast losing its formerly vaunted leadership in advanced manufacturing -- and particularly in so-called producers' goods -- to Japan.
His 1999 book "In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity" anticipated the American Internet stock crash of 2000 and offered an early warning about the abuse of new financial instruments.
In his 2008 book "In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony," he challenged the conventional view that China is converging to Western economic and political values.
His books have been translated into French, Russian, Korean, Japanese, and Chinese. They have been read into the U.S. Senate record and named among the ten best business books of the year by Business Week and Amazon.com.

Yes, Of Course, China is Headed the Same Way as Japan -- But Just Not the Way You Think!

The main entrance to the Wynn Resorts complex in Macau, a special administrative region of China where the company recently held its annual meeting. (Image credit: AFP/Getty Images via @daylife)

Suddenly the press is full of fears of a Chinese crash, and some of the more daring commentators are even predicting that China will follow Japan in suffering endless “lost decades.”

All this is said to bode ill for such U.S. stocks with serious China exposure as Las Vegas Sands, Wynn Resorts, and Yum! Brands. And various China-based corporations with real estate connections (some of whose fundamentals have been questionable all along) are down to a fraction of their prices of last year. Examples include E-House (China) and Xinyuan.

So what are the prospects? There are two separate issues here: prospects for stocks on the one hand and prospects for the economy on the other. In the case of China, the two are far from identical. I am a convinced agnostic on stock investment efforts to profit from China’s growth and am particularly skeptical about China-based stocks. Given the notorious accounting issues, the best thing that can be said about these is that they are a crap shoot. As for U.S. stocks with China exposure, the message surely is that they are heavily dependent on politics. If Beijing continues to smile on companies like Sands, Wynn and Yum, all will be well. But gambling stocks in particular may prove vulnerable to changing political fortunes.

The really interesting thing here, however, is surely the outlook for the Chinese economy. So how about all the talk that China could “go the way of Japan”? Such talk is based on multiple misconceptions. Seen from a Japanese point of view — and indeed from an East Asian point of view — there have been no “lost decades.” Japanese policymakers are focused on long-term issues such as the competitiveness of Japan’s manufacturing base, the strength of its exports, and the nation’s ability to project economic power abroad. Such issues are never mentioned in all the “lost decades” reports. That’s because they utterly undercut that story. The real story can be summed up in the fact that since January 1990, when the Tokyo crash began, Japan has boosted its net foreign assets from less than $200 billion to nearly $3.5 trillion — an increase of more than $3.3 trillion. In the same period America’s net foreign liabilities have increased by nearly $8 trillion. Underlying the contrasting trends is the fact that Japan has replaced the United States as the world leader in advanced manufacturing, particularly in advanced producers’ goods (the things the rest of the world crucially depends on to make consumer goods).

A century from now, when all the idiots in today’s Anglophone press have passed from the scene, America’s loss of leadership in advanced manufacturing — and its consequent increasingly abject dependence for funding on the governments of Japan, China, and other East Asian nations — will be the one thing that will be remembered. By comparison what happened in the early 1990s in the Tokyo real estate market (and what might happen in the Shanghai real estate market in the next few years) will rightly be seen as meaningless noise.

Having noted the superordinate facts, I will add a prediction: China can be expected increasingly to join Japan and Germany in advanced producers’ goods. It will by the same token continue, at least as rapidly as Japan, to increase its net foreign assets. Click here for an article I wrote for the New York Times earlier this year on the Japan story.

As for the United States, its “strategy” of borrowing from China to save the world from China will — far too soon — come to be seen as one of the great absurdities of history.

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